Strong Support And Resistance Levels

Support and resistance levels are key price levels in any market that prevent the price from passing beyond that level. Especially, the strong levels are important because traders hugely buy (in support zones) and sell (in resistance zones). Therefore, recognizing those levels is a key for determining the future movements of the price.

We can recognize how strong they are by these factors :

1) Number of times the price reaches the zone

One of the factors of a strong support or resistance level is how many times the price has failed to break the level and reversed from that point. As much as the market reaches these levels and comes back, the more strong they are. Generally, the support and resistance levels that remained for a longer time in the history of that chart, will be counted as more valid ones. However, it is important to note that just because a resistance level has been touched multiple times, it does not guarantee that it will always block the price from breaking that level. There are times when the resistance and support levels will finally break.

2) The volume of trading activity

As the price is getting close to a resistance level if the volume starts increasing, that is a sign that traders have started to sell. Therefore, there are high probability that the price change its direction downwards. On the other hand, if the price is getting close to a support level and the volume starts increasing, that is a sign that traders have started to buy and the direction might reverse upwards.

AAPL (Apple Stock), Daily Chart (2011 - 2012)

3) The period the price stays close to the level

If the price stays close to the level for a longer period after it has gotten close to the level, this indicates that the level is strong. For example, if the price stays close to the resistance zone and loses its sharp upward at that level, it indicates that the resistance zone is strong. If it stays longer close to that level, more traders and investors will pay attention to that and might decide to sell. Also, traders will not prefer to buy in that zone either. Therefore the chances are that the price reverse the direction to downward. The same scenario can happen close to the support zone. In a downtrend mark, if the price loses its momentum as it is getting close to a support zone and stays closer to that level, traders will prefer to buy and there will be more probability as the price movement turns into upward.

No resistance or support level is immortal. They will be broken sometime in the future.